What is a checking account?

Everything you need to know about checking accounts

A checking account is a handy bank account for everyday expenses. You can make deposits, pay bills, and access cash with a debit card or ATM card.  

Since it allows for unlimited deposits, it’s often the most logical account to deposit your paychecks into (usually by direct deposit). You can also use it to make payments in a number of ways: using a debit card, linking it to a payment app, or even writing a check. It

can be more convenient than using money orders or prepaid debit cards, so it’s a good idea to get a checking account when you start making money and/or when you start to have lots of bills to pay!

How do I open a checking account? 

Opening a checking account is similar to opening a savings account. You’ll first want to compare a few banking services account types. Read through this entire article to learn about things such overdraft fees and low-balance checking accounts for everything you need to know before you commit to a bank.

To apply, you’ll need:

• Your Social Security Number (you probably don’t need the card, just the number, which you might already have memorized). 

• A government-issued ID, such as a driver’s license or a passport (again, you may just need the information from this ID, especially if you’re applying for the account online).

• Other information that you’ll need might include your date of birth, email address, and physical address. 

• Most accounts let you apply online, though in some cases you’ll need to apply in person. Then, once you’re set up, download the app and you’ll be ready to go!

Why you need a checking account

To pay for things 

The primary reason you’ll want a checking account is to pay for things. You can easily access the money in your checking account in a number of ways.

You can, of course, write a check (people do still take checks, as surprising as that might sound). You can also access it using a debit card or link various electronic and app-based accounts to your checking account (see below for more information on this).

This is a lot easier than relying on cash and money orders and a lot cheaper too!

To have your paychecks direct deposited into your checking account

It’s also good for putting money into as well. These days, we use the word “paycheck” pretty loosely (the same way we use the phrase “hang up the phone” when we’re really just pressing the “end call button.”).

Many employers don’t pay you with an actual check (or cash, even if you work in a cash-heavy business like waiting tables), but rather set up a direct deposit program for you. You may have other sources of funds above and beyond your regular paycheck, and that money can go into your checking account, too.

(Don’t worry. You can transfer money from your checking account to your savings account so you can build up your savings each month!). Having one place where all your incoming money ends up is convenient, to say the least. 

What fees do banks usually charge?

The Federal Deposit Insurance Commission (FDIC) lists up to EIGHT different fees that a bank may charge you just for keeping your money in your checking account!

From monthly service fees to ATM charges to overdraft fees to a phone inquiry fee, the bank can hit you from multiple angles and suck away plenty of your hard-earned dollars with their fees (some hidden, some out in the open). For some checking accounts, you can be charged for seemingly everything.

Here are nine common fees that you might encounter when you’re looking at different checking accounts:

1. Monthly service fee: Just like it sounds. Some banks charge you a set amount each month for the privilege of using your account! This is also known as a maintenance fee and was once the most common fee associated with checking accounts, but thankfully, there are more and more free checking accounts out there.
2. ATM-usage fee: Your bank may charge you a fee every time you use an out-of-network ATM to make a transaction.
3. Overdraft fee: If you try to make a purchase and you don’t have enough money in your account to cover it, your bank will let the purchase go through, dropping your account into a negative balance and charging you a fee on top of that. Not all accounts do this, and, if you think you’re in danger of over drafting from time to time, we can help you find a checking account that doesn’t charge you overdraft fees. These are also known as NSF (non-sufficient funds) fees.
4. Returned-deposit fee: If you try to deposit a check in your account and that check bounces, your bank will charge you a fee.
5. Per-check fee: If you’re in the habit of writing a lot of checks (though these days, that seems unlikely), you want to be wary of this. Your bank will ding you with a surcharge every time you write a check (though some checking accounts allow for a few free checks a month before this fee kicks in).
6. Check-printing fee: This is how much you pay to actually get your checks from the bank. You can get plain or fancy ones (those Avengers checks are pretty sweet, especially the ones with Cap and Iron Man), though the fancy ones usually cost more. The bank typically deducts the cost of the checks right from your account.
7. Stop-payment fee: Sometimes, you need to stop a check in its tracks. Maybe you lost a check from your checkbook, or maybe you changed your mind after you wrote out a check and gave it to someone. If you need to stop payment on a check, your bank will charge you a fee.
8. Phone-inquiry fee: Now that you have the ability to check your account balance online or through an app, banks are trying to push customers to self-service through these tools. For that reason, some checking accounts charge you a fee if you call the bank to find out if a check has cleared. If you’re comfortable using online and mobile banking tools, you may not have to worry about this fee.
9. Debit-card replacement fee. That’s right, if you lose your card or forget about it in your favorite jeans and it takes a wash, they charge you to mail you a new one.  Many banks don’t charge, but some it can be as much as $35!

As you can see, these fees can really start to add up, especially if your account has many of them!

What fees do most banks charge?

Fees for the above can vary quite a bit depending on the bank, but, generally, you’re going to be looking at:

• $35 overdraft fees

• $2 per ATM transaction fee

• $10-$12 per month maintenance fee

• $5-$25 in various other types of fees

All of those fees can really add up. You might think you have a few hundred dollars left in your account only to realize your actual balance is a lot lower because of all these fees. That could be quite a shock to the system!

What to look for in a checking account

• Connect to apps: Get a checking account with a great mobile app. Look for one that lets you check your balance, set up alerts, transfer funds to and from the account, and deposit checks remotely. You’ll also want to connect your checking account to mobile payment apps like Venmo, which allow you to pay (and get paid by!) your friends and family.
• Debit card: This may end up being the most common way you use your checking account. Your debit card will take money out of your checking account (electronically, of course) and provide it to the person or business you’re trying to pay, either in person or online. It works like a credit card, but it lets you pay with your own money rather than using a line of credit. Whether you’re buying something in a big box store, paying for a meal at a restaurant, or ordering something from your favorite website, your debit card will serve you well, so make sure you get a checking account that provides you with a debit card!
• ATM withdrawals: There are times when you will want cash, and you can withdraw money from your checking account via an ATM (automated teller machine), probably using the same debit card described above. The money comes right out of your account and into your hand, and you can use it to buy things the old-fashioned way! Check to see if there are lots of ATMs in your area, and find out if you get charged a fee if you use an out-of-network ATM.
• Write checks: This is where this type of account gets its name, even though fewer and fewer checks are written each year. Some people don’t write any, but there may be times when you will need to write a check. Maybe your landlord requires it. Maybe you need to pay your neighbor for something and she just doesn’t want to use PayPal or Venmo. At times like these, you’ll go old school and write that check!

Low-balance checking accounts

Things to consider when searching for a low-balance checking account

Even when you decide that you want a checking account with no minimum balance requirement, there are a few things you’ll still need to think about.

• Will your account alert you if your balance drops too low?
• Do you want a big bank or a new, digital option?
• Do you want a checking account that offers interest on the money in your account?

What is an initial deposit?

The money you put into your checking account when you first open it is called your initial deposit. Nowadays, a lot of accounts call for a very small initial deposit or, in lots of cases, no deposit at all! This gives you a lot of flexibility, as you won’t have to pull together a ton of money just to have a checking account.

Find the right account and you can get up and running right away, putting money in your checking account as you go. And, if you choose the right account, you won’t have to worry too much about keeping a ton of money in it at any one time.

What is considered a “low balance?”

This can vary from account to account and bank to bank. And having a low balance can have a lot of impact in certain accounts.

For example, some accounts offer benefits if you have a high balance, such as interest on your money.

Others impose a penalty if your balance drops below a certain amount, such as charging you a monthly fee. This can be a real blow, as they’re taking money from you when you’re already falling below a certain threshold. And these levels can vary widely from account to account.

It’s often better to just not worry about minimum balances at all by choosing a checking account with no minimum.

According to Yahoo Finance, the average median checking account balance for an American under the age of 35 is $1,200, Considering the fact that we all have to pay things like rent, cell phone bills, and grocery bills, that’s not a lot of money.

Your balance can easily drop quite low, and you don’t want to face a penalty if you end up in that situation once — or more than once!

What penalties can I expect if the balance of my checking account is too low?

If the account falls below the minimum balance it may be assessed fees, denied interest payments, or closed. For certain types of accounts, you could face significant penalties if you keep your balance too low, such as overdraft fees or fees for insufficient funds.

But the good news is, there are a lot of great accounts that don’t have any penalty at all for having a low balance. In fact, some of the best checking accounts have no minimum balance requirements at all.

So, avoid getting hit by fees and penalties by choosing a checking account that has no minimum. That way, you can go about your business without having to micromanage your account (though we do recommend you keep it above zero.

If you think it’s going to dip below that mark over the course of a month, you should look closely at checking accounts that have no overdraft fees) 

What about a no minimum balance checking account?

This is usually the best option for young people and people who have been used to living paycheck-to-paycheck. Of all the factors to consider when picking a checking account, this could be the most important one.

Checking account overdraft fees explained

What’s an overdraft fee?

Say you have about $100. You’re not entirely sure because, well, you’ve been busy with work and friends and you haven’t been paying attention to your exact balance.

But, c’mon, you don’t need to know it to the penny, do you? Well, you might. Let’s say, for example, you saw an online ad for a pair of headphones you really, really want. 

They’re $100, and you figure you’ve got about that much in your account, so you hit the Buy Now button and imagine how your favorite tunes are going to sound on your new purchase. 

• You’re pretty happy… until you get a notification that you’ve over-drawn your checking account. The purchase went through, but the bank charged you a fee for trying to spend more money than you actually had. 
• You had $97 and spent $100, so your balance dropped to $-3… except you got hit with the overdraft fee of $35, now you have $-38 in your account.
• This is bad. The bank has charged you for the privilege of using its money and will collect the first $35 of the next money that comes into your account. It’s annoying and frustrating to be sure, but it gets worse. Read on to see how overdraft fees can pile up.

How does the bank handle overdraft fees?

If you have overdraft protection, your bank will let your account become negative but will charge you fees for every transaction.

Of course, this varies from bank to bank, but for banks that don’t have $0 overdraft fees, these situations can be rough on account holders. Take the example above:

• You’re down to $-38 in your account. Maybe you know because you set up mobile alerts to tell you when your balance dipped below a certain amount. But maybe you don’t, because you haven’t been paying close enough attention to how much money you have to last you to payday.
• So you make another purchase, unaware that you have a negative balance (or maybe you do know, but you have to buy this one item now. It just can’t wait until payday). 
• So, rather than having your bank reject the transaction, the sale goes through. Your $20 purchase brings your account down to $-58, but another $35 overdraft fee brings you to $-93. 
• You’ve been hit with $70 worth of overdraft fees, and there’s no end in sight!

According to The Pew Charitable Trust, U.S. banks charged users over $2.4 billion in overdraft fees in the first half of 2015 alone.

Again, depending on the bank, you may get a notification when you have an overdraft. Sometimes it only happens when you sign up for that option.

Also, in the examples above, you were making purchases, but you can also be hit with these fees when you take money out of an ATM. You’ll get your cash but the machine won’t tell you about the overdraft fee — until you check your balance and realize it’s a lot lower than you expected.

What can you do to avoid bank overdraft fees?

There are several ways to avoid these fees.

• One way is to make sure you keep close track of how much money you have in your account and not spend more than you have! Banking apps can really help with this.
• Set up alerts to let you know if your balance drops low or if you’re in danger of over drafting. 
• Reschedule payments, avoid making purchases or find some money to transfer into your account until you’re in better financial shape.
• Find an account that has no overdraft fees, or offers a solution:
  • Declining payments when they’d cause an overdraft
  • Transferring money from savings to cover the overdraft
  • Giving a small line of credit to cover the occasional overdraft

What’s the impact of bank overdraft fees?

The short answer is, they can really add up and cause a chain reaction that can be hugely detrimental.

According to the Consumer Financial Protection Bureau, 18% of customers make up 91% of overdraft fees in 2015. More than half of these people are under 30 years of age. You can see how these fees add up and can be crippling, especially for young people who may be making below-average salaries.

The fact of the matter is that the majority of overdraft fees came from transactions costing $24 or less, so people ended up paying more than twice as much for their purchases as they intended to!

What about bank fee overdraft protection?

One way to avoid overdraft fees is to find an account (or, more likely, a pair of accounts, as you’ll soon see) that offer overdraft protection. This automatically transfers money from your savings account when you don’t have enough money in your checking account to cover the purchase or withdrawal.

Some overdraft protection plans let you use a credit card to cover the difference, but using a savings account is smarter, as you won’t build up additional, perhaps unexpected, debt.

Overdraft protection is helpful, as it prevents you from being hit with the overdraft fee. In some cases, there are monthly or weekly limits to the number of times your overdraft protection can kick in.

In addition, you’ll, of course, need to be sure you have a savings account and make sure you have enough in that account to cover the overdraft (and still have the minimum balance required by your savings account, too).

Will banks waive overdraft fees?

You may be able to call your bank and ask them to remove overdraft fees due to specific circumstances or hardships. Read our article, How to get overdraft fees refunded to learn how.

Checking accounts for people under 30

What makes a checking account right for people under 30?

When you’re in your 20s, you might find yourself with less money in your pocket (or bank accounts) than you might like.

If you don’t have tens of thousands of dollars in the bank, you likely won’t have to worry about how much interest your checking account will earn. You can focus, instead, on keeping all of your hard-earned money by avoiding monthly fees and those associated with minimum balances.

These kinds of accounts (especially ones that are easy to use via apps and other electronic means) are well-suited for someone like you, someone just getting started on your financial journey!

What to do if you don’t have a checking account

If you don’t have a checking account, then you’re likely to use alternative methods to pay your bills.

• Using cash has become increasingly difficult as many businesses are moving to cashless transactions — especially during the pandemic.

• Another option is to pay through a bill counter at your grocery store or Walmart.

• Or you can use a money order. These can be inconvenient, as you need to find a place that will make one for you and each one costs a surcharge.

• Prepaid debit cards are convenient, but they have hassles as well. Sure, you can often refill them, but that process can be a pain.  

Check out a checking account

A checking account is a useful tool that can make financial transactions a lot easier. According to The Pew Charitable Trust, nine out of 10 Americans have a checking account.

It can help you manage the money you’ve got coming in and allows you to easily pay for things.

Sure, you don’t make money like you would with a savings account that earns you interest, but the convenience of it outweighs the drawbacks. In fact, pairing a checking and a savings account together sets you up with the initial financial tools you need to take on the world!